Piotr Dudziński
ARTICLE

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ABSTRACT

Classical result by Ehrlich and Becker states that with two states of the world, market insurance and self-insurance are substitutes. However, it turns out that conclusion does not hold in the model with many states. This paper considers interactions between price of compulsory market insurance and demand for self-insurance. We present sufficient conditions for self-insurance to be complementary or substitute for market insurance. We provide economic interpretation of that result, highlighting the role of an efficiency of self-insurace as a key to understanding the phenomenon.

KEYWORDS

self-insurance, insurance, substitution, complementarity

REFERENCES

Act of 22 May 2003 on Compulsory Insurance, Insurance Guarantee Fund and the Polish Motor Insurers’ Bureau (Journal of Laws 2003, no. 124, item 1152).

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Ehrlich I., Becker G. S., (1972), Market Insurance, Self-Insurance, and Self-Protection, Journal of Political Economy, 80 (4), 623–648.

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Lee K., (2010a), Wealth Effects on Self-Insurance, The Geneva Risk and Insurance Review, 35, 160–171.

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Pratt J. W., (1964), Risk Aversion in the Small and in the Large, Econometrica, 32, 122–136.

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